Mortgage Glossary
Interest
The cost you pay to borrow money. Your lender charges interest as a percentage of your loan balance each month.
What It Means
Interest is the fee your lender charges for lending you money. It's expressed as an annual percentage rate (APR or interest rate) and calculated monthly on your remaining loan balance.
In the early years, most of your monthly payment is interest. Over time, as you pay down the principal, less interest accrues each month and more of your payment reduces the loan balance.
Even a small difference in interest rate can save (or cost) you tens of thousands of dollars over the life of a loan.
Real-World Example
"If your loan balance is $300,000 and your interest rate is 6%, you'll pay about $1,500 in interest in your first month. As your balance drops, so does the monthly interest charge."
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Definitions are for educational purposes only and do not constitute financial or legal advice.